Sovereign bonds investors need to consider risks from the impact of climate change into their allocation decisions. Climate change implies two main categories of risks for financial stakeholders: the risks from physical impacts and transitioning to a carbon-neutral economy.
A clear understanding of these risks is important to reallocate financial resources in a manner that is consistent with the Paris Agreement objectives. The latter seek to limit the likelihood of capital being destroyed by climate damages and investments turning into “stranded assets.”
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